<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarter ended March 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-29098
NAVIDEC, INC.
(Exact name of Registrant as specified in its charter)
COLORADO 33-0502730
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
6399 S. Fiddler's Green Circle, Suite 300 Greenwood Village, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number: 303-222-1100
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
As of May 12, 2000, Registrant had 11,056,639 shares of common stock
outstanding
<PAGE> 2
NAVIDEC, INC.
INDEX
PART I. FINANCIAL INFORMATION
===============================
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999
Consolidated Statements of Cash Flows for the Three months ended
March 31, 2000 and 1999
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
============================
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NAVIDEC, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
-------------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 35,860 $ 18,812
Investment in Debt Securities 9,855 14,145
Accounts receivable, net of allowance for doubtful
accounts for both periods of $307 4,371 3,994
Costs and estimated earnings in excess of billings 148 1,700
Inventory 846 790
Note receivable 0 1,200
Prepaid expenses and other 885 730
-------- --------
Total current assets 51,965 41,371
PROPERTY EQUIPMENT AND SOFTWARE, net of accumulated
depreciation of $1,508 and $2,093 respectively 7,398 10,112
OTHER ASSETS:
Goodwill and other intangibles, net of accumulated
amortization of $244 and $280, respectively 1,175 1,139
Deferred financing costs, net of
accumulated amortization of $45 and $90, respectively 901 856
Investments 3,199 3,811
Investment in IADMA 390 259
-------- --------
Total other assets 5,665 6,065
-------- --------
TOTAL ASSETS $ 65,028 $ 57,548
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,437 $ 717
Bank overdrafts 149 383
Accrued liabilities 1,692 1,277
Current portion of capital lease obligations 423 814
-------- --------
Total current liabilities 5,701 3,191
CAPITAL LEASE OBLIGATIONS, net of current portion 356 821
CONVERTIBLE DEBT OBLIGATIONS,
net of unamortized discount of $1,324
and $1,258, respectively 19,876 19,942
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares authorized,
10,855 and 11,057 shares issued and outstanding,
respectively 54,910 55,545
Warrants for common stock 1,207 1,161
Other comprehensive income 290 338
Accumulated deficit (17,312) (23,450)
-------- --------
Total shareholders' equity 39,095 33,594
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 65,028 $ 57,548
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 4
NAVIDEC, INC.
STATEMENTS OF OPERATIONS
(In thousands, except shares and per share amounts)
For the Three Months
Ended March 31,
(Unaudited)
1999 2000
------------ ------------
REVENUE $ 4,457 $ 6,557
COST OF REVENUE 2,768 3,385
----------- -----------
GROSS PROFIT 1,689 3,172
OPERATING EXPENSES:
Product development 741 1,403
General and administrative 980 2,773
Sales and marketing 735 5,377
----------- -----------
Total Operating Expenses 2,456 9,553
----------- -----------
LOSS FROM OPERATIONS (767) (6,381)
OTHER INCOME, net 5 243
----------- -----------
NET LOSS $ (762) $ (6,138)
============ ============
BASIC AND DILUTED
NET LOSS PER SHARE $ (.14) $ (.56)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING- BASIC AND
DILUTED 5,497,000 10,961,000
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 5
NAVIDEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1999 2000
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (762) $ (6,138)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 126 796
Non-cash interest expense -- 111
Changes in operating assets and liabilities-
Accounts receivable (1,212) 377
Costs and estimated earnings in excess of billings (25) (1,552)
Inventories 7 56
Prepaid expenses and other assets (166) 155
Accounts payable -- (2,720)
Bank overdrafts -- 234
Accrued liabilities (13) (415)
-------- --------
Net cash used in operating activities (2,045) (9,096)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payment for) notes receivable 0 (1,200)
Capitalized software development costs 0 (365)
Purchase of marketable debt securities 0 (4,290)
Purchase of investment 0 (564)
Purchases of property, equipment and software (70) (1,927)
Other 7 131
-------- --------
Net cash used in investing activities (63) (8,215)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from factoring of accounts receivable 257 0
Payments to factor (369) 0
Proceeds from exercise of common stock options and warrants 15,748 589
Payments on notes payable and capital lease obligations (761) (326)
-------- --------
Net cash provided by financing activities 14,875 263
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 12,767 (17,048)
CASH AND CASH EQUIVALENTS, beginning of period 711 35,860
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 13,478 $ 18,812
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 9 $ 57
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND MANAGEMENT OPINION
The unaudited financial statements and related notes to the financial statements
presented herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying financial
statements were prepared in accordance with the accounting policies used in the
preparation of the Company's audited financial statements included in its Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, and should be
read in conjunction with such financial statements and notes thereto.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of operating
results for the interim period presented have been made.
(2) CONVERTIBLE DEBT OBLIGATIONS AND SHAREHOLDERS' EQUITY
On September 30, 1999, WFC Holdings Corporation ("WFC"), a subsidiary of Wells
Fargo & Company, made an investment of $25 million in the Company and
DriveOff.com. Wells Fargo purchased 380,000 shares of the Company's common
stock for $3,800,000 or $10.00 per share and received a note for $6,200,000
that is convertible into 701,081 shares of the Company's common stock. For its
$15 million investment in DriveOff.com, WFC received a note convertible into
3.2 million shares (representing twenty percent of DriveOff.com's common stock
outstanding as of the closing of the transaction, on an as converted basis).
WFC also received a five-year warrant for an additional 160,000 shares of
DriveOff.com, exercisable one year after the transaction's closing at $6.5625
per share.
Warrants and Options Exercised and Redeemed in 2000
During the first three months of 2000, the Company had 18,000 warrants
exercised resulting in net proceeds of $86,000 and employee options
representing 184,000 shares of the Company's common stock were exercised
resulting in net proceeds of $503,000.
(3) COMPREHENSIVE INCOME
In June, 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 defines comprehensive income as all changes in shareholder
equity exclusive of transactions with owners, such as capital investments.
Comprehensive income includes net income or loss, changes in certain assets and
liabilities that are reported directly in equity such as translation adjustments
on investments in foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company's comprehensive loss for the three-month periods ended
March 31, 1999 and 2000 was $762 and $6,186, respectively.
(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measures those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - An
amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective
date of SFAS 133 to financial quarters and financial years beginning after June
15, 2000. We do not typically enter into arrangements that would fall under the
scope of SFAS 133 and thus, management believes that SFAS 133 will not
significantly affect our financial condition and results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. The accounting impact of SAB 101 is required to be
determined no later than the Company's second fiscal quarter of 2000. If the
Company determines that its revenue recognition policies must change to be in
compliance with SAB 101, the implementation of SAB 101 will require the Company
to restate its first quarter
<PAGE> 7
2000 results to reflect a cumulative effect of change in accounting principle as
if SAB 101 had been implemented on January 1, 2000. The Company is currently
reviewing SAB 101 to determine what impact, if any, the adoption of SAB 101 will
have on its financial position and results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The
Interpretation clarifies the application of APB No. 25 for certain issues
related to equity based instruments issued to employees. FIN No. 44 is effective
on July 1, 2000, except for certain transactions, and will be applied on a
prospective basis. Management believes that FIN No. 44 will not have a
significant impact on its financial statements.
(5) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
Costs and estimated earnings in excess of billings as of March 31, 2000 is
comprised of the following:
Costs incurred on contracts in progress $ 648,000
Estimated earnings 1,052,000
------------
1,700,000
Less progress billings --
------------
$1,700,000
============
(6) INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or market, and
consist primarily of products held for resale and use in online solutions.
(7) NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss for the period by the
weighted average number of common shares outstanding for the period. Diluted net
loss per share is computed by dividing the net loss for the period by the
weighted average number of common and potential common shares outstanding during
the period if the effect of the potential common shares is dilutive. The Company
has excluded the weighted average effect (using the treasury stock method) of
common stock issuable upon conversion of all warrants and stock options from the
computation of diluted earnings per share as the effect of all such securities
is anti-dilutive for all periods presented.
(8) SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
disclosure of operating segments, which as defined, are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
The Company operates in three different segments: E-Solutions, DriveOff.com
(formerly "Automotive"), and Product Distribution. Management has chosen to
organize the Company around these segments based on differences in products and
services.
E-Solutions provides custom solutions, including the architecture, design,
development and integration of high tech solutions, utilizing web technology.
DriveOff.com provides total online automotive solutions through its web sites,
in addition to providing custom solutions to companies in or with relationships
in the automotive industry. Product Distribution provides the resale and
configuration of third party software and hardware components, graphical
printers and supplies.
Segment operations are measured consistent with the accounting policies used in
these consolidated financial statements.
<PAGE> 8
The following provides information on the Company's segments:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 2000
(In thousands)
--------------------------------------------------------------
Product
E-Solutions Driveoff.com Distribution Corporate Total
----------- ------------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
customers ............ $ 6,006 $ 254 $ 297 $ -- $ 6,557
Gross Profit ......... $ 2,800 $ 156 $ 118 $ -- $ 3,172
Loss from operations . $ (141) $ (5,335) $ (109) $ (796)(1) $ (6,381)
Identifiable assets .. $ 12,425 $ 11,117 $ 494 $ 33,512(2) $ 57,548
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1999
(In thousands)
--------------------------------------------------------------
Product
E-Solutions Driveoff.com Distribution Corporate Total
----------- ------------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
Revenues from external
customers ............ $ 3,091 $ 707 $ 659 $ -- $ 4,457
Gross Profit ......... $ 948 $ 515 $ 226 $ -- $ 1,689
Income (Loss) from
operations............ $ 92 $ (874) $ 110 $ (95)(1) $ (767)
Identifiable assets .. $ 3,607 $ 1,187 $ 633 $ 13,966(2) $ 19,393
</TABLE>
(1) Corporate loss from operations represents depreciation expense.
(2) Corporate assets are those that are not directly identifiable to a
particular segment and includes cash, cash equivalents, investments in debt
securities, investments, property and equipment and prepaids and other assets.
<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a provider and incubator of innovative e-businesses solutions and
services. We provide e-business services to a wide range of customers, from
start-up enterprises to Fortune 1000 businesses. Our services enable our
customers to transform their Internet operations from a basic web presence into
an integrated e-business.
We were organized in July 1993 as a value-added reseller of computer products
under the name ACI Systems, Inc. In July 1996, we merged with Interactive
Planet, Inc., a designer and developer of Internet web sites and subsequently
changed our name to Navidec, Inc. In July 1997, we acquired TouchSource, Inc., a
designer and developer of interactive kiosks. Through the acquisition, we
significantly enhanced our business model by combining expertise in traditional
marketing and distribution and Internet/Intranet technology. In December 1998,
we acquired CarWizard.com and LeaseSource.com, two prominent online automotive
sites, in order to expand our online automotive presence.
Currently, we derive revenue from three divisions: E-solutions, DriveOff.com and
Product Distribution. The majority of our E-solutions revenue is generated from
fixed-price, fixed-time contracts. We consider many factors in developing the
fixed-price and fixed-time of a contract, including the technical complexity of
the engagement, the resources required to complete the engagement and the extent
to which we will be able to deploy internally developed software tools to
deliver the solution. Since most of our solutions are delivered within a 90 to
120-day time frame, revenue is recognized using percentage-of-completion
accounting based on the ratio of direct costs incurred as compared to the
estimated total direct costs needed to complete the engagement. We plan to
expand our E-solutions services offerings to incorporate applications management
and hosting services, which will generate recurring revenues.
DriveOff.com's revenue is primarily derived from the sale of leads generated by
our CarWizard.com, LeaseSource.com and USWheels.com web sites. During the second
quarter of 1999, we contributed substantially all of the assets associated with
our DriveOff.com division to a new subsidiary, DriveOff.com, Inc. Currently, we
receive revenue from marketing and service fees from the Internet Auto Dealer
Marketing Alliance ("IADMA") and from financing and insurance preparation fees.
Under the terms of our contract, all vehicle transactions generated by
DriveOff.com will be delivered to IADMA member dealers in return for a monthly
documentation fee. We are currently considering strategic alternatives for
DriveOff.com, which may include an initial public offering, a spin-off, a joint
venture or sale of all or a substantial portion of DriveOff.com to an unrelated
third party or maintenance of our current ownership.
Our Product Distribution business generates revenue through the resale of third
party software and hardware components, graphical printers and supplies. Since
product distribution is not related to our core strategy, we expect that revenue
from this business will become a smaller percentage of total revenue as our
E-Solutions division and DriveOff.com continue to grow.
Our operating expenses consist of product development, general and
administrative and sales and marketing. Product development includes salaries
and out-of-pocket expenses incurred in developing new technologies for our own
use and for future customer applications generally, as opposed to
customer-specific development expenses. General and administrative consists
primarily of salary and benefit expenses for our employees. It also includes
lease expenses associated with our office facility and various equipment. Sales
and marketing includes advertising costs, costs associated with participation in
trade shows and related travel expenses.
RESULTS OF OPERATIONS
For the Three Months
Ended March 31,
(In Thousands)
1999 2000
---- ----
(unaudited) (unaudited)
Revenue:
E-solutions $3,091 $6,006
DriveOff.com 707 254
Product distribution 659 297
--- ---
<PAGE> 10
Total revenue $4,457 $6,557
Cost of revenue 2,768 3,385
----- ------
Gross profit 1,689 3,172
Operating Expense:
Product development 741 1,403
General and administrative 980 2,773
Sales and marketing 735 5,377
--- -----
2,456 9,553
Loss from operations $(767) $(6,381)
RESULTS OF OPERATIONS AS A PERCENTAGE OF REVENUES
For the Three Months
Ended March 31,
1999 2000
---- ----
(unaudited) (unaudited)
Revenue:
E-Solutions 69.4% 91.6%
DriveOff.com 15.9% 03.9%
Product distribution 14.7% 04.5%
----- -----
Total revenue 100.0% 100.0%
Cost of revenue 62.1% 51.6%
----- -----
Gross profit 37.9% 48.4%
Operating Expense:
Product development 16.6% 21.4%
General and administrative 22.0% 42.3%
Sales and marketing 16.5% 82.0%
----- -----
55.1% 145.7%
Loss from operations (17.2)% (97.3)%
Revenue for the three months ended March 31, 2000 increased 47.1% over the same
period in 1999, from $4.5 million to $6.6 million. The increase was due to
increased revenues from our E-Solutions business.
E-Solutions revenue for the three months ended March 31, 2000 increased 94.3%
over for the same period in 1999, from $3.1 million to $6.0 million. The
increase in E-Solutions revenue was primarily due to increased project size as
we performed more complex and comprehensive solutions for our clients.
DriveOff.com revenue for the three months ended March 31, 2000 decreased 64.1%
over the same period of 1999, from $707,000 to $254,000. The decrease in
DriveOff.com revenue was a result of the Company's change from a lead based
revenue model to its current sales model. Management made this change as it
believes this model will meet customer needs more effectively.
Revenue from the Product Distribution division for the three months ended March
31, 2000, decreased by 54.9% over the same quarter of 1999, from $659,000 to
$297,000. The decrease in sales was due to the Company's decision to focus less
on product distribution and devote more resources to E-Solutions and
DriveOff.com.
Gross profit for the three months ended March 31, 2000 increased $1.5 million
or 87.8% over gross profit for the same period in 1999, from $1.7 million to
$3.2 million. As a percent of revenue, gross margin increased from 37.9% to
48.4% as a result of a changing mix of sales. Our E-Solutions division's gross
margin for the three months ended March 31, 2000 increased 15.9 percentage
points over gross margin for the same period in 1999, from 30.7% to 46.6%.
DriveOff.com's gross margin as a percentage of revenue for the three months
ended March 31, 2000 decreased 11.9 percentage points from the same period
in 1999, from 72.8% to 61.4%. The decrease in gross profit was the result
of the new sales model employed by DriveOff.com.
<PAGE> 11
Operating expenses for the three months ended March 31, 2000 were $9.6 million,
or 145.7% of sales, compared with $2.5 million, or 55.1% of revenue, for the
same period in 1999. The increase was the result of opening new regional offices
and the expansion of the Company's main facility, along with increased sales and
marketing expenses associated with the expansion of DriveOff.com
Product development costs were $1.4 million, or 21.4% of sales, for the three
months ended March 31, 2000 compared to $741,000, or 16.6% of revenue, for the
same period in 1999. The increase in expense is the result of increased work on
the Company's e-commerce framework. Product development costs are projected to
increase during the remainder of 2000 as we expand our product sets.
General and administrative expenses for the three months ended March 31, 2000
were $2.8 million, or 42.3% of revenue, compared to $980,000, or 22.0% of
revenue, for the same quarter in 1999. General and administrative expenses
increased as a percentage of revenue due to the expansion and development of the
corporate infrastructure that can support future growth.
Sales and marketing expenses were $5.4 million, or 82.0% of revenue, for the
three months ended March 31, 2000, compared to $735,000, or 16.5% of revenue,
for the same period of 1999. The increase in sales and marketing expenses is the
result of our efforts to expand brand recognition and is projected to increase
in 2000 as we expand our marketing for our E-Solutions division and services
provided by DriveOff.com.
Other income was $243,000 for the three months ended March 31, 2000, an increase
of $238,000 from other income of $5,000 for the same period of 1999. The
increase was a result of increased interest income from larger cash and cash
equivalent balances in 2000.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through March 31, 2000, we funded our operations primarily
from the following sources:
- equity investments through an initial public offering and a
subsequent, public offering and private placements of our securities;
- revenues generated from operations;
- convertible debt obligations
- loans from principal shareholders and employees;
- lines of credit; and
- accounts receivable factoring arrangements made available by banks.
As of March 31, 2000, we had cash and cash equivalents of $18.8 million and net
working capital of $38.2 million. This compares with cash and cash equivalents
of $35.9 million and net working capital of $46.3 as of December 31, 1999.
Cash used in our operating activities totaled $9.2 million for the three months
ended March 31, 2000, compared to $2.0 million for the same period of 1999. Cash
used in our investing activities totaled $8.1 million for the three months ended
March 31, 2000, compared with $63,000 for same period of 1999. Cash used in our
investing activities during those periods consisted primarily of expenditures
for property equipment and software, investment in short term marketable debt
securities, capitalized software and the funding of notes receivable.
Cash provided by our financing activities was $263,000 during the three months
ended March 31, 2000. That amount was raised primarily through the issuance of
our common stock as a result of warrants and options being exercised. Cash
provided by our financing activities was $14.9 million in the three months ended
March 31, 1999.
Through March 31, 2000, the Company had a net operating loss of $24.6 million.
The ability to utilize this net operating loss carry forward to offset future
taxable income will be limited, possibly significantly, by certain provisions of
the Internal Revenue Code of 1986, and, in particular, Section 382 of the Code
relating to certain ownership changes of corporations which have losses. The
Company believes that it is more likely than not that a significant portion of
the benefits of these net operating loss carry forwards will not be realized.
Accordingly, a valuation allowance has been recorded against the entire deferred
tax asset in the Company's financial statements.
We believe that our available cash resources will be sufficient to meet our
anticipated working capital, capital expenditure, capital investments and debt
service requirements for at least the next 12 months. If, however, our capital
requirements or cash flow vary materially from our current projections or if
unforeseen circumstances occur, we may
<PAGE> 12
require additional financing sooner than we anticipate. Failure to raise
necessary capital could restrict our growth, limit our development of new
products and services or hinder our ability to compete.
OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance on
accounting for the cost of such software. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. Our
adoption of SOP No. 98-1 in fiscal 1999 did not have a material impact on the
financial statements.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities ("SOP No. 98-5"). In general, SOP No. 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred and
specifies that initial application of SOP No. 98-5 should be reported as the
cumulative effect of a change in accounting principle. The provisions of SOP No.
98-5 are effective for fiscal years beginning after December 15, 1998. The
adoption of SOP No. 98-5 in fiscal 1999 did not have a material impact on our
financial statements.
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measures those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - An
amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective
date of SFAS 133 to financial quarters and financial years beginning after June
15, 2000. We do not typically enter into arrangements that would fall under the
scope of SFAS 133 and thus, management believes that SFAS 133 will not
significantly affect our financial condition and results of operations.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in financial statements. The accounting impact of SAB 101 is required to be
determined no later than the Company's second fiscal quarter of 2000. If the
Company determines that its revenue recognition policies must change to be in
compliance with SAB 101, the implementation of SAB 101 will require the Company
to restate its first quarter 2000 results to reflect a cumulative effect of
change in accounting principle as if SAB 101 had been implemented on January 1,
2000. The Company is currently reviewing SAB 101 to determine what impact, if
any, the adoption of SAB 101 will have on its financial position and results of
operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The
Interpretation clarifies the application of APB No. 25 for certain issues
related to equity based instruments issued to employees. FIN No. 44 is effective
on July 1, 2000, except for certain transactions, and will be applied on a
prospective basis. Management believes that FIN No. 44 will not have a
significant impact on its financial statements.
FORWARD LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q, including, without limitation,
statements relating to our plans, strategies, objectives, expectations,
intentions and adequacy of resources, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These factors include,
among others, the following: our limited operating history; our incubation
strategy; unknown liabilities associated with future acquisitions; availability
of qualified personnel; ability to manage growth; changes in technology; future
government regulations; ability to obtain additional financing; and other
factors described in this Form 10-Q or in other of our filings with the
Securities and Exchange Commission. We are under no obligation, to publicly
update or revise any forward looking statements, whether as a result of new
information, future events or otherwise.
<PAGE> 13
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes and change in the
market values of its investments.
INTEREST RATE RISK The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's borrowings and its investment
portfolio. The Company has not used derivative financial instruments to hedge
its interest rate risk. The Company invests its excess cash in high quality
short-term corporate and municipal debt instruments and, by policy, limits the
amount of credit exposure to any one issuer. The Company protects and preserves
its invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carries a degree of interest rate risk. Fixed rate securities may have their
fair market value adversely impacted due to a rise in interest rates, while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, the Company's future investment income may
fall short of expectations due to changes in interest rates or the Company may
suffer losses in principal if forced to sell securities, which have declined in
market value due to changes in interest rates. The Company has invested in
$21.2 million of 3% fixed rate convertible debt.
INVESTMENT RISK The Company has equity investments in information technology
companies for business and strategic purposes. These investments are included in
other long-term assets and are accounted for under the cost method since
ownership is less than 20% and the Company does not assert significant
influence. For the non-quoted investments, the Company's policy is to regularly
review the assumptions underlying the operating performance and cash flow
forecasts in assessing the carrying value. The Company identifies and records
impairment losses on long-lived assets when events and circumstances indicate
that such assets might be impaired. To date, no such impairment has been
recorded. The Company also invests in equity of primarily publicly-held,
information technology companies for business and strategic purposes. Such
investments, are subject to significant fluctuations in fair market value due to
the volatility of the stock market.
Year 2000
We did not experience any significant malfunctions or errors in our operating or
business systems when the date changed from 1999 to 2000, we do not expect any
significant impact to our ongoing business as a result of the "Year 2000 issue."
However, it is possible that the full impact of the date change, which was of
concern due to computer programs that use two digits instead of four digits to
define years, has not been fully recognized.
INFLATION
The Company does not believe that inflation will have a material impact on our
future operations.
FORWARD LOOKING INFORMATION
Information contained in this report, other than historical information, should
be considered forward looking and reflects management's current views of future
events and financial performance that involve a number of risks and
uncertainties. The factors that could cause actual results to differ materially
include, but are not limited to, the following: general economic conditions and
developments within the Internet and Intranet industries; competition; market
acceptance of our products and services; length of sales cycle; variability of
sales order flow; management of growth; and other risk factors identified from
time to time in the Company's filings with the Securities and Exchange
Commission. These filings are available on-line at http://www.sec.gov.
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Form 8-K
None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAVIDEC, INC.
By /S/RALPH ARMIJO
Ralph Armijo
President and CEO
Date: May 15, 2000
By /S/ PAT MAWHINNEY
Pat Mawhinney
Chief Financial Officer
Date: May 15, 2000
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